MEDICAL MARKETS

N.J. governor wants tobacco money for health coverage

The governor proposes spending more than one-third of the state's allocation on health insurance subsidies for the working poor.

By Leigh Page, AMNews staff. Jan. 24, 2000.

New Jersey Gov. Christine Todd Whitman has a novel use for tobacco companies' $206 billion in payments to states that begin in April and continue for the next 26 years.

Whitman wants to spend $100 million of the tobacco settlement each year for the next 26 -- more than one-third of her state's total share of $7 billion -- on coverage for the uninsured.

All states are expected to use some of the money for health care; governors in Massachusetts and Arkansas want to directly fund health care programs for the uninsured, according to the National Governors Assn.

Unlike those two states, the New Jersey governor would subsidize employer insurance, stretching the tobacco dollars and also encouraging more companies to provide coverage.

Whitman's plan would pay half the cost of each employer policy for more than 100,000 low-income working adults who don't qualify for Medicaid.

Doctors should be "thrilled with this proposal," said Irving P. Ratner, MD, president of the New Jersey Medical Society.

If more patients are insured, "instead of running to the emergency room, they can go to a real doctor," he said. He added that U.S. physicians already provide "billions of dollars of uncompensated care each year" and need more payments.

A looming problem

Whitman's plan addresses a growing problem. The U.S. Census Bureau reports that 16.4% of New Jerseyans had no insurance coverage in 1998, a rate just about on par with the 16.3% of the uninsured U.S. population, which increased by 1 million over 1997 to exceed 44 million.

An employer subsidy would address a key factor in the growth of the uninsured -- small companies' abandoning coverage. A survey by the U.S. Chamber of Commerce found that 10% of small businesses said they had discontinued health insurance coverage in 1998.

Whitman provided few details. "The governor is committed to spending as much as possible of the tobacco settlement money on health-related matters, and she's working on a program that will provide health insurance for low- and moderate-income working adults," said press aide Laura Otterbourg.

The governor was expected to unveil the full plan in her State of the State speech on Jan. 11. The Republican governor's plan must win approval from the GOP-controlled Legislature; some lawmakers have other ideas for the tobacco windfall, including smoking cessation programs, cancer research and even school construction and homestead tax credits. Also, hospitals want some of the money to cover more charity care.

Senate President Donald T. DiFrancesco told the Philadelphia Inquirer he wanted more information before he would endorse the plan. "They're just going to have to explain to me why we're not using some other funds," he said. "Why is this coming out of the tobacco settlement? It is just an easy source of money."

But DiFrancesco, a Republican, said he supports subsidizing employers' insurance. Representatives of consumer groups and businesses also lent their support to the idea.

The tobacco windfall is a welcome arrival for a state that has tried to address the uninsured with limited funds and limited success.

A 1995 state insurance program, Health Access New Jersey, was flooded with applicants but received only $10 million in yearly funding rather than the $100 million intended. Enrollment had to be capped at 18,000, said Anthony Wright, health care program director of New Jersey Citizen Action, a consumer advocacy group.

New Jersey found generous support to cover children of low-income families from the federal Children's Health Insurance Program, which pays at least two-thirds of states' costs -- much more than Medicaid.

In two years the state has signed up 51,000 children, but that's only about half of the 100,000 children it's funded to cover.

Wright said one reason needy parents don't sign up their children is that they themselves can't be covered under CHIP. "If it's only covering your kid, it's less likely that you will apply," he said.

So states like Massachusetts and Wisconsin are beginning to use CHIP funds to cover whole families through subsidies of employer insurance, according to the National Academy for State Health Policy in Portland, Maine. But the state subsidy cannot exceed the amount CHIP would pay for the child alone.

The CHIP funding of $20.3 billion from 1997 to 2002 is a rich source that has hardly been tapped. So far, much of the yearly allocated funding has been unspent. But the tobacco windfall collectively is 10 times larger than the CHIP allotment and has virtually no strings attached.

How it would work

The New Jersey program, dubbed FamilyCare, would use $2.6 billion or 37% of $7 billion going to New Jersey in the next 26 years, according to a draft obtained by New Jersey newspapers. FamilyCare would cover adults with family incomes up to 200% of poverty, or $37,000 a year for a family of four. There would be a limit of 123,112 people, or 13% of the 950,000 uninsured adults in the state.

An individual subsidy would amount to as much as $2,500, but it was not clear from reports whether the money would go to employers or employees, which is crucial. Subsidies of the employer's share would make it more likely that companies would offer coverage, while subsidies of the employee's share would make it more likely that employees would actually take up the offers.

Experience with employer subsidies under the federal Health Insurance Premium Payment Program under Medicaid show the approach is not a guaranteed success.

Five states have taken advantage of the Medicaid program. A 1997 study of three of those programs in Iowa, Pennsylvania and Texas by the General Accounting Office found enrollment disappointing, even when taking into account that most Medicaid enrollees don't have jobs.

In Texas, the largest state surveyed, just over 5,000 people, or 0.2% of Medicaid recipients, were enrolled. The GAO blamed low enrollment on the difficulty identifying potential enrollees and many employers' unwillingness to cooperate. Employers might have feared the extra paperwork and the possibility that they might get sicker patients who could raise their premiums, the GAO said.

But the potential problems of the approach don't faze its advocates.

The uninsured are "an approaching crisis" the state can't ignore, Wright said.

Back to top.